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Sunningdale upgraded to 'hold' by CGS-CIMB despite expected coronavirus impact

Stanislaus Jude Chan
Stanislaus Jude Chan • 3 min read
Sunningdale upgraded to 'hold' by CGS-CIMB despite expected coronavirus impact
Shares in Sunningdale Tech have tumbled more than 15% over the past 12 months. But CGS-CIMB Research believes the worst could be over.
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SINGAPORE (Mar 4): CGS-CIMB Research is upgrading Sunningdale Tech to “hold”, from “reduce” previously, despite an expected negative impact on the precision plastic components manufacturer’s performance in 1QFY2020 ending March on the back of the novel coronavirus outbreak.

“On top of the seasonally weaker first quarter due to the Lunar New Year holidays in China, we think movement restrictions and quarantine requirements due to the Covid-19 outbreak in China lowered Sunningdale’s output at its China factories,” says analyst William Tng in a Mar 2 report.

In China, the group has manufacturing facilities in Chuzhou, Guangzhou, Shanghai, Suzhou, Tianjin and Zhongshan.

Already, Sunningdale’s automotive segment has been suffering from poor end-consumer demand.

For FY2019 ended December, the group reported a 9.2% drop in revenue from its automotive segment to $245.1 million, from $269.9 million a year ago.

The group attributed the decline to a decrease in orders from customers as a result of weakening demand across global automotive markets, as well as certain projects reaching end-of-life.

Meanwhile, revenue from Sunningdale’s consumer/IT and mould fabrication segments fell 7.7% and 6.1%, respectively.

Only the group’s smallest segment – healthcare – managed to eke out an increase in revenue for FY2019. Revenue from its healthcare segment edged up by 1.0% to $57.3 million.

This brought total group revenue to $673.8 million for FY2019, some 7.3% lower than a year ago.

FY2019 earnings plunged 73.2% to $8.0 million, on the back of the weaker top-line performance as well as the absence of a one-off gain of $13.1 million recorded in FY2018 on the disposal of a property.

However, CGS-CIMB’s Tng notes that the FY2019 net profit was in line with the brokerage’s expectation. “Excluding foreign exchange losses of $1.1 million and retrenchment costs of $1.3 million, core net profit was $11.9 million,” he adds.

The market, though, has jittery on Sunningdale’s prospects, in light of the automotive slowdown and the coronavirus outbreak.

Year-to-date, the counter has slipped 9.8% to close at $1.20 on Mar 3. It is also trading some 15.5% lower than a peak of $1.42 in March last year.

For now, Tng believes that the downside from the automotive segment slowdown has been priced in.

Meanwhile, he forecasts a dividend yield of 6.6% for FY2020, which should provide some share price support.

Tng also notes that Sunningdale has net gearing of 0.1 times as at end-December, which “could throw up acquisition opportunities” amid the current market conditions.

CGS-CIMB is lowering its target price for Sunningdale down slightly to $1.10, from $1.14 previously, after factoring in the larger outstanding number of shares due to employee stock options exercised in FY2019.

As at 12.50pm, shares in Sunningdale are trading flat at $1.20, implying an estimated forward core price-to-earnings (P/E) ratio of 14.6 times and price-to-book value (P/BV) of 0.6 times for FY2020F.

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